True or False: Surprising Facts About How Raising the Minimum Wage Will Affect the SMB


With all the shouting going on around raising the minimum wage, how can you tell what the implications will be for your business?

Every few years, the debate about raising the minimum raise comes up and depending on whom you ask, it’s a great idea, or a terrible one.  An economy is an ecosystem, and you cannot flood one area without another area feeling the impact,whether that impact is immediate or spread out over the long term.  

From entrepreneurs with fledgling startups to old-world institutions, this is a big conversation.  Employers must always walk a fine line between wanting to pay their quality people well and maintaining operating costs.  This line can fluctuate wildly depending on the kind of business you run.  

Yet, the public is often misled about the larger implications of raising pay,historically speaking, so it’s worth examining what economists, small business owners, and other experts in the field have to say about it.  

True or False: Raising employee pay will force many businesses to lay off their labor.

False: During the last round of debate in April of 2014, seven Nobel Laureates inEconomics joined 75 other advocates to present an argument in favor of raising theFederal rate from $7.25 per hour to $10.10.  Simply stated, upping the minimum means workers have more money to spend, which acts as a boost to the economy.In the past, businesses have seen little to no impact on their labor force and the key is to index the living wage according to inflation1.  Because the cost of living has shot up so dramatically in many American cities, places like Seattle and San Francisco have set the bar at $15.00 per hour.  Those new rates have yet to go into effect and so the outcome is unclear.[2]

True or False: A higher hourly wage will force businesses to raise their prices.

True: But it varies widely.  Take for example the restaurant industry, which relies on minimum wage workers and requires high overhead.  Even if a restaurant reorganizes for more efficiency, it often cannot afford to let employees go, so the cost gets passed onto the customer.  By contrast, law firms won’t be affected as directly since these types of businesses don’t have many or any minimum wageworkers at all.

True or False: Businesses will have access to a more skilled labor pool.

True: Another advantage that more diversified businesses (companies that have both minimum wage earners and skilled labor) will see is that they can start people at entry level with a more broad skill set.  It potentially opens up the field of available candidates for entry-level positions.  However, the downside is that management positions will also require adjustment, but business owners say that the long-term costs associated with raising pay will balance out with hiring a more skilled and specialized workforce [3].  
True or False: New businesses and startups will get hurt the most.
False: Older, more established businesses are often less flexible in their business practices, where young companies are prepared to scale accordingly.  That elasticity is key in responding to the pressures of the market, so new companies are often better-prepared, and willing to pay workers more.  
The business owners in America are split on the subject, but it’s interesting to note that the smallest businesses with 1-9 employees are overwhelmingly in favor of a national pay hike, where large companies would like to keep labor prices where they are [4].
It’s important to consider the intangibles when upping your workers’ pay; it’s great for morale and employee retention.  Also, more effort on your employees’ parts will likely mean gains in productivity.  One of the key decisions entrepreneurs must make is what to pay employers for the work in order to sustain and grow their companies.  If you are starting a business right now, factor it into your business plan that the price you pay for labor is likely going to change.